Force Majeure in the Time of COVID-19
Hopefully, the doctrine of Force Majeure will never have more widespread application than it does right now. Translated from French, the “superior force” or Act of God doctrine relieves a party from liability when circumstances outside of their control make performance, or observing a duty, impossible, commercially impractical, or inadvisable.
Force Majeure clauses are frequently included in commercial contracts. The specific language in any given situation is very important. A relatively thorough example:
Neither party shall be liable to the other for any failure or delay in performance under this Agreement, occasioned by war, riot, government action, act of God or public enemy, damage to or destruction of facilities, strike, labor dispute, failure of supplier or workers, inability to obtain adequate newsprint or supplies, or any other cause substantially beyond the control of the party required to perform.
I’ve underlined the end of the clause because “control” is frequently the gravamen of the Force Majeure inquiry.
In order to excuse nonperformance of a contract on the ground of an act of God, there must be no mixture in that, first, of want of diligence; there must be no admixture of negligence; there must be no admixture of want of judgment or skill. In an act of God no amount of judgment or skill or wisdom can prevent the damage or injury. That is what distinguishes it from other things that have connected with them the agency of man.
Smith v. N. Am. Transp. & Trading Co., 20 Wash. 580, 585, 56 P. 372, 373–74 (1899).
Related to control is foreseeability. The owner of a lodge was not able to escape tort liability when strong winds, easily an Act of God in other contexts, knocked down a wall the owner should have known was unstable. Teter v. Olympia Lodge No. 1, I.O.O.F., 195 Wash. 185, 80 P.2d 547, 551 (1938). By contrast, the Washington State Supreme Court has opined that terrorist attacks, labor strikes, major stock market declines, and significant third-party layoffs, may be unforeseeable and outside of a party’s control. Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wash. 2d 493, 509, 115 P.3d 262, 270 (2005). Like the specific language in a contract scenario, context is critical – your November wedding being rained-out in Seattle is going to be very different situation from the same storm hitting July nuptials in Death Valley (not advised, for other reasons).
It is the magnitude and nature of the force, not the severity of the dispute or capitalization of the parties that matters. As the Court stated in the Hearst case: “The law of contracts is the same whether the parties are two publishing giants fighting for market control or two individuals disputing the cost of appliance repair work.”
As the coronavirus continues to rage around the globe, Force Majeure may prove to be critical to keeping companies, large and small, out of bankruptcy, or worse. But, like many legal doctrines, being on the wrong side of Force Majeure may also have devastating consequences.
Please be aware that a Force Majeure analysis can vary significantly amongst jurisdictions and a fact specific inquiry is necessary to determine risk.
Nate Arnold litigates on behalf of individuals and small to mid-sized companies, as well as advising his clients how to stay in business and out of the courtroom.